India’s new labour codes mark the most significant restructuring of labour regulation since Independence. At the heart of this reform is the Code on Wages, which seeks to rationalise and strengthen the minimum wage framework. The timing of these reforms is critical, as informality continues to dominate India’s labour market. PLFS data indicate rising informal employment. Even within the formal sector, social security coverage remains limited, with 43.6% of workers still without benefits. Inter-state disparities are stark, with Bihar, Chhattisgarh, Madhya Pradesh, Odisha, Rajasthan, and Jharkhand reporting informality levels of 85–90%. Also, there has been a persistent gap between productivity and wage growth, suggesting productivity gains need not translate into improved worker outcomes.
Against this backdrop, the new labour codes, while not an automatic solution, offer an important institutional opening for strengthening wage-setting and worker protection.
India was among the early adopters of statutory minimum wages, introducing the Minimum Wages Act in 1948, empowering states to set wage floors for selected “scheduled employments” with weak bargaining power, such as agriculture, construction, brick kilns, bakeries, automobile workshops, and others, while the Centre set wages for employments under its jurisdiction. Over time, this decentralised system produced a fragmented wage regime, with multiple floors across occupations and regions. In the absence of a national floor, large segments of workers remained uncovered. Weak enforcement and slow judicial processes diluted compliance.
These structural limitations make it essential to assess whether the new labour codes meaningfully address them or merely repackage existing arrangements.
A key innovation of the Code on Wages is the introduction of a statutory floor wage for all workers. While states can set sector-specific minimum wages, these cannot fall below the floor fixed by the Centre. Advisory boards at the central and state levels guide this process, though their recommendations are non-binding. The national floor wage currently stands at ₹178 per day, last notified in 2019, with no official revision to reflect even inflation.
Multiple wage floors set by the Union and state governments led to a highly fragmented and non-uniform minimum wage structure across sectors and skills. Regional gaps also remain stark — a maximum uniform rate of ₹646 in a state compared to a minimum of ₹176 in another — encouraging inter-state firm relocation. While regional committees exist, a transparent wage-setting formula accounting for living costs and inflation is needed under the New Codes to rationalise minimum wages.
India’s minimum wage framework has long been constrained by weak enforcement. Administrative data from annual minimum wage reports indicate substantial variation across states in effective enforcement. While some states conduct inspections covering over 20% of establishments, many inspect less than 1%. Moreover, among the irregularities detected, only about half result in formal prosecutions.
The new labour codes seek to address these disparities by replacing surprise inspections — often criticised as inspector-raj — with a system of “inspector-cum-facilitators” focused on online, risk-based inspections and compliance support. While this may reduce costs and discretionary overreach, its success depends on administrative capacity, making stronger enforcement manpower and technical capability essential. Dispute resolution has also shifted to designated authorities and appellate bodies staffed by gazetted officers, though whether this leads to faster and more credible outcomes remains an open question.
A key insight in labour economics, highlighted by the ILO, is that minimum wages work best when workers have credible outside options, such as public employment programmes that pay at least the statutory minimum. In India, MGNREGA has the potential to function as a strong outside option, especially if wages are aligned with statutory minima and payments are timely. However, wages under MGNREGA are not currently linked to state minimum wages, but the Centre notifies them under section 6(1) of the Act based on the Consumer Price Index for Agricultural Labour. The new labour codes state that their provisions will not affect MGNREGA, and do not formally link them to minimum wage legislation. The recently enacted VB-G RAM G Act follows a similar structure, with wage-setting assigned to the Centre but without explicit reference to the national floor. Delays in payments and changes in funding further weaken the credibility of these programmes as outside options. Bringing VB-G RAM G — and public employment schemes more broadly — within the ambit of the Code on Wages would strengthen minimum wage enforcement by improving workers’ bargaining power.
The introduction of a statutory floor wage under the new labour codes is a welcome step but its effectiveness will hinge on three interrelated factors: The adoption of a transparent and inflation-responsive wage-setting methodology, the strengthening of enforcement capacity under the new facilitative framework, and the alignment of public employment programmes with statutory wage floors.
Vharun B and Meenakshi Shekhar are with CAFRAL, RBI. The views expressed are personal
